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OPINION

Low oil, natural gas prices continue holding pattern

As we approach the one-year mark from the very OPEC meeting that shifted crude oil prices around the globe, Louisiana’s drilling activity continues its own downward trek. In many ways, a perfect storm has occurred. We have low natural gas prices, low oil prices and a devastating Louisiana legal climate. This past week, zero permits where filed in Louisiana. Needless to say, this downturn has been far worse than even the crash of the mid-’80s.

Low natural gas prices are here to stay for the foreseeable future. Demand, however, is always the key factor with natural gas prices. We have an abundance of natural gas in our supply chain with a much less significant demand for the fuel. While low natural gas prices are a good thing for our Louisiana petrochemical industry and the manufacturing sector, if the operators cannot afford to drill the gas, then can anyone actually benefit? Cheniere Energy’s liquefied natural gas facility coming online this year will help in some capacity with demand. Still much more demand is needed to bring the prices up to a profitable level.

Global oil prices are a different beast all together. Too many variables exist to mention in one column, but OPEC has been one clear reason for the drastic drop in prices. OPEC was determined on Thanksgiving Day to severely cripple the U.S. oil shale producers — all in an effort to maintain or gain market share. Oddly enough, OPEC’s true loss in market share comes from the Russians. Russia has decided to export more oil to the Chinese market as they see growth potential in that market. With the recent slow-down in the Chinese economy, Russia could be second-guessing their export decisions.

Powerful OPEC member Saudi Arabia is now focusing on the European market that has historically been Russia’s primary market. Another shift in the market comes as Iran sanctions will be removed due to the U.S.-Iran nuclear deal. Removing sanctions on Iran will add another 1.5 million barrels of crude oil into the already-flooded market. This can only drive prices further downward.

What is the point of going through all the details and movements of OPEC, the Saudis, Iran and Russia? It is important to show the complex nature and geopolitics that shape the price of a barrel of oil. No one factor drives the price of crude oil. To the contrary, natural gas is primarily driven on the domestic level by demand. The OPEC cartelmeet in December of this year to discuss what steps will be taken to help stabilize global crude oil supply and prices.

Last, but certainly not least, Louisiana’s legal climate remains as a contributor to the previously mentioned perfect storm. Oil and gas companies have repeatedly said they will not invest future capital where a hostile legal climate exists. As a reminder, nearly 400 legacy lawsuits exist against the oil and gas industry impacting hundreds of companies that operate within our state.

A few factors have to change for our industry to thrive again. A true change in the legal climate must take place for our state to be an enticing investment climate. However, the price of oil and natural gas has to make an upward recovery for any significant drilling to take place over the coming months and years.